Let's Get Started
What Is a Personal Loan for Business?
A personal loan for business is exactly what it sounds like—a personal loan that the borrower uses for business purposes. Personal loans for business can be especially useful for newer businesses without an established track record. If you’re a business owner in this situation, personal loans for business often have lower interest rates than many other business loans you’d typically qualify for.
Personal Loans for Business Details
| Max. Loan Amount | Loan Term | Interest Rates | Speed |
|---|---|---|---|
| $50,000 | 3 - 5 years | 5.99% to 35% APR | As fast as 1 day |
Pros- Can be much less expensive than a traditional business loan
- Easier to qualify for
- Collateral often not required
- Great for startups with limited business history
- Repaid monthly rather than weekly or daily
Cons- Reports to your personal credit history
- Mixes personal and business finances
- Limited loan amounts, usually under $50,000
How Do Personal Loans for Business Work?
As previously mentioned, a personal loan for business is a way a borrower can acquire the financing they need for their business in the event they don’t have enough revenue or time in business to qualify for a traditional business loan.
A personal loan can be money borrowed from a bank, credit union, or online lender with terms that dictate that the funds can be used for business purposes. These types of loans are usually term loans, meaning you pay them back in fixed, monthly installments with interest over the length of your repayment period (typically three to five years).
It’s important to note that not all personal loans are allowed to be used for business purposes. Therefore, if you’re looking to take out a personal loan for business, you’ll want to be sure your lender will allow you to apply the funds toward your business.
If so, you can use your personal loan for a variety of business purposes, including purchasing inventory, meeting payroll, or buying ads.
Benefits of Using a Personal Loan for Business
There are four main benefits to using a personal loan for business:
Easier to qualify for: The reason you’re likely seeking a personal loan for your small business is because you can’t qualify for a traditional business loan. With a personal loan for business, the lender will consider your personal financial background, rather than your business’s.
Therefore, if you have a good credit score and some income, you’ll likely have an easier time securing a personal loan for your business than you would a traditional business loan. For this reason, personal loans for business are often particularly appealing for startup funding.
Collateral not required: In addition, many personal loans for business are unsecured—meaning you don’t need to offer up collateral with your loan agreement. Most business loans, on the other hand, are secured by some form of collateral, whether physical assets, a personal guarantee, or a UCC-lien.
Lower APRs: Because your personal financial history is stronger (or more established) than your business’s financial history, a personal loan for business will likely grant you more favorable terms than a traditional business loan.
Typically, you’ll see interest rates that start as low as 5.99%. You’ll also receive a fixed payment schedule with monthly repayments (as opposed to daily or weekly) and longer repayment terms.
Flexibility: Although certain types of business loans can only be applied toward certain expenses, a personal loan for business usually offers you quite a bit of flexibility in terms of what you can spend the money on.
Drawbacks of Using a Personal Loan for Business
Although a personal loan for business has its uses, you should also be aware of the drawbacks of using this type of financing:
Risking personal assets: In order to qualify for a personal loan for business, you may have to put up your own assets as collateral. If you default on the loan, those assets could be seized. Additionally, because the loan is a personal loan, your payment history will be reported to the consumer credit bureaus—meaning any late payments or default will impact your personal credit score.
Can’t build business credit: Because the loan isn’t tied to your business, a personal loan for business can’t help you build your business credit score—this could then further limit your ability to secure a business loan in the future.
Small loan amounts: A personal loan is typically smaller than a business loan, meaning you might not be able to receive all the funds you need to cover expenses.
Mixing personal and business finances: If you use a personal loan for business, you risk mixing your personal and business finances, which can cause a lot of headaches come tax season. In order to avoid issues, we recommend opening a separate business bank account and enlisting the help of a bookkeeper.
When to Use a Personal Loan for Your Small Business
With these benefits and drawbacks in mind, you might be wondering when it’s worth using a personal loan for your business needs. Ultimately, this is a decision only you can make, however, here are some scenarios in which you might opt for a personal loan over a dedicated business loan:
- You’re a brand-new startup. Many business owners use personal loans to start a business, because it’s much more difficult to access business-specific funding without a history of operations. Therefore, if you need the funding to get your business off the ground, you might opt for a personal loan.
- You need a small loan amount, but can’t pay high interest rates. Many banks are reluctant to issue business loans in small amounts, because they yield less interest for the bank, but cost the same amount of work as a larger, more lucrative business loan would. If you need less than $50,000, then, you might turn to an alternative lender, but these smaller, short-term business loans can be expensive. Therefore, if you’re looking for a small loan amount with lower interest rates, you might work with your bank to get quoted for a personal loan for your small business.
- You don’t have collateral to secure your loan. One of the most common reasons why banks deny borrowers for business loans is because of insufficient collateral. Although you may have greater flexibility with online lenders or SBA lenders, personal loans for business are much less likely to require collateral. So, if you’re worried about offering up your assets on a loan, a personal loan might be worth considering.
On the other hand, of course, there are also scenarios in which a dedicated business loan will be a better solution for your financial needs:
- You have a solid business track record. If your business is already up and running, you’re backed by excellent credit and assets, and you’ve got a plan for your funds that would make a lender confident in your mutual success, you’ll certainly want to look for a traditional business loan. Even if you can’t necessarily qualify for a bank loan, it will be worth considering an SBA loan or a long-term loan from an online lender over a personal loan for your business.
- You need a large loan amount. As we’ve mentioned, personal loans for small businesses are often only available in amounts of $50,000 or less. Therefore, if you need a larger loan, you’ll want to look into traditional business loans. In particular, if you can qualify for an SBA loan, you’ll be able to access loan amounts up to $5 million, with low, affordable interest rates. Similarly, although interest rates might be higher, online lenders will also be able to offer loans with higher funding amounts.
- You have a specific business need. Personal loans will only be available in two forms—a line of credit or a term loan. With business-specific loans, on the other hand, you’ll be able to explore many other types of financing, including those that are designed to fulfill unique business needs, like invoice and equipment financing. If you need to purchase equipment or have capital tied up in unpaid invoices, equipment or invoice financing will be much more suitable options than a personal loan for business.
Best Personal Loans for Business
Now that you have an understanding of the pros and cons of using a personal loan for a small business, as well as the scenarios in which you might do so, let’s explore some of the best options on the market.
First and foremost, it’s worth mentioning that if you’re looking for a personal loan for business, you might start your search with your bank, whether a national or community bank, as you already have a relationship there. If your bank can’t offer what you need, or you simply want to consider other solutions, however, you might take a look at the top options below:
| Lender | Loan Amounts and Repayment Period | Interest Rates | Speed | Minimum Credit Score | Best For |
|---|---|---|---|---|---|
Up to $45,000; three to five years |
7.161% to 29.99% APR |
As fast as one day |
580 to 640 |
Borrowers with average and above credit; fast, long-term funding |
|
Up to $40,000; three to five years |
7.95% to 35.99% APR |
Average of five business days |
640 |
Borrowers with average and above credit; unsecured personal loan for business |
|
Up to $35,000; two to five years |
9.95% to 35.99% APR |
As fast as one day |
580 |
Borrowers with lower credit scores; fast funding |
|
Up to $50,000; three or five years |
4.66% to 35.99% APR |
As fast as one day |
620 |
Slightly larger loan amounts; fast funding; lower APR for highly qualified borrowers |
How to Get a Personal Loan for Business
Ultimately, personal loans for business are granted to borrowers with a strong personal credit history and a steady amount of income.
This being said, however, the requirements you’ll need to meet to qualify for a personal loan for your business will vary based on the bank or lender, as you can see above.
Generally, lenders will look at factors like your personal credit score, debt-to-income ratio, gross annual income, and net worth to determine whether or not you qualify for a loan—and if you qualify, what interest rate you’ll receive.
Although you can go directly to a lender to see if you qualify and apply for a personal loan for your business, you might also opt to use a marketplace like Fiona or Credible, in which you input your personal information and see a range of options that might suit your needs.
How to Apply for a Personal Loan for Your Business
As we explained in regards to qualifications, the application process for a personal loan for business will depend on the type of lender you’re working with—just like with any business loan application.
With this in mind, many business owners apply for personal loans from their preferred bank, which will typically have a longer application process.
Others will apply for personal loans online. These lenders, like those summarized above, will have more streamlined and efficient application processes—only requiring a handful of documents in the actual application.
Documents you need:
- Driver’s License
- Credit Score
- Bank Account Number
- Pay Stubs / W-2s
- Personal Tax Return
Alternatives to Personal Loans for Business
If a personal loan for business doesn’t make sense for you, there are some alternatives to consider.
Business Lines of Credit
A business line of credit is similar to a credit card. It gives you access to a pool of funds to draw from when you need capital, and you only have to repay what you use. Business lines of credit typically come with higher loan amounts than personal loans for business, and they can also be used for a wide variety of business purposes.
A good lender to consider for a business line of credit is Fundbox. Through Fundbox, you can secure a loan between $1,000 and $100,000 with a 12- to 24-week repayment term. Note that Fundbox requires weekly repayments, and you’ll pay an interest rate ranging from 0.5% to 0.9% of the drawn amount per week.
To qualify for a business line of credit from Fundbox, you only need three months of business history on the books and a 500 minimum credit score.
Business Credit Card
Another common option is to finance your business with a business credit card—particularly a 0% intro APR credit card. By using a business credit card with a 0% intro APR period, you’ll essentially have a credit card that acts as an interest-free loan—letting you pay down debt while paying no interest on purchases during the introductory period.
Note that once your 0% intro APR period expires, your interest rate will set in at a rate that will depend on your creditworthiness and the market prime rate.
To qualify for a business credit card, you’ll need a strong personal credit score. Keep in mind that business credit cards typically don’t come with high credit limits. Still, a business credit card is a great way to begin funding your business interest-free (especially as a startup) while earning rewards for spending.
The Bottom Line
Deciding whether or not to fund your business with a personal loan can be a tricky decision. On the one hand, you may be able to acquire more affordable business financing than if you went with a standard business loan. Plus, you might be considering a personal loan to start a business and can’t access traditional business loans at this time.
On the other hand, you risk mixing your personal and business assets, and putting your personal property at risk. You’ll want to consider both angles before proceeding.
If you’re ready to take the next step, however, there are a variety of reputable lenders (like those listed above) that can help you get a loan that makes sense for you and your business.